Yes, Ford Is Still a Buy

Its turnaround at home has been a huge success, and it may look like a done deal. But Ford still has work to do -- and more gains on the way -- overseas.

By now, the remarkable turnaround at Ford (NYSE:F) is kind of old news. In the space of just a few years, the long-troubled automaker has become a stable, profitable, investment-grade maker of cars and trucks that are increasingly well regarded around the world.

Here in North America, Ford's recovery seems like a done deal. Its market share is stable, its cars and trucks are very good, and it's booking solid profits. The stock has run from less than $2 during the dark days of the economic crisis to more than $12.

A casual observer might think that Ford's stock might not have much more room to run.

But that observer would be missing a bigger story. In some ways, Ford's turnaround is just getting started. And Ford's stock may well have a lot of room left to run in the next few years.

The key ingredients of Ford's turnaroundTo understand why Ford's stock may still have significant upside, it's helpful to understand how Ford's dramatic turnaround happened. When Alan Mulally took over as Ford's CEO in 2006, he found a company that was on its last legs -- posting huge losses and riven by executive infighting and a disconnect between regional divisions, with a mishmash of a global product line that just wasn't competitive with the best in the business.

But he was able to rally the whole company behind a simple plan of action, aptly called "One Ford." Under this plan, Ford would put all of its weight behind a single, streamlined global lineup of products. That would allow the company to lavish each new car and truck with extra attention, and to realize big cost savings and efficiencies from the larger economies of scale that would result.

The result has been tremendous -- at least here in North America, where the plan has been most fully implemented. Ford's products have soared up the comparison rankings, finally becoming competitive with the best cars from the likes of Toyota (NYSE:TM) and Honda (NYSE:HMC). That has allowed Ford to make more sales with fewer discounts -- and that, plus the cost efficiencies realized from global economies of scale, have made Ford's profit margins in North America among the best in the business.

Overseas, though, Ford still has work to do -- and that's where the investment story starts to get interesting.

Exporting "One Ford" to troubled EuropeFord, like most of its regional competitors, has been losing a lot of money in Europe: $1.75 billion in 2012, with a similar loss expected in 2013. Auto sales in the region have fallen to lows not seen since the 1990s, as government austerity programs have dragged many European nations into deep recessions.

Ford's problems are familiar ones: too many factories and a need for more competitive products. Sound familiar? So will the solution: Mulally and his team announced last fall that they're essentially exporting "One Ford" to Europe. Three factories will close, to bring Ford's factory utilization in Europe closer to the high levels that have made North America so profitable. Several new products, drawn from Ford's newly global product lineup, will make their debut. And the company will tweak its marketing and make additional cuts as needed to return to breakeven by mid-decade.

It's a workable, proven plan with a high chance of success. And that means that Ford -- which earned $8 billion before taxes last year, while losing $1.75 billion in Europe -- could see that total rise to close to $10 billion within a few years, even if nothing else changes.

But there's more good news: A big Ford effort in Asia should add even more to the bottom line -- and soon.

Building a big presence in AsiaChina's automotive market has quickly grown to be the biggest in the world, with more than 19 million vehicles sold last year. Big global names dominate the market: General Motors (NYSE:GM) and Volkswagen (NASDAQOTH:VLKAY) are the leading players, but nearly all of the global automakers are represented -- along with a slew of domestic Chinese companies, all fighting for traction.

Ford was a latecomer to this party, not arriving in earnest until long after GM and VW had established a commanding presence in the country. But it has been moving aggressively to make up for lost time: Ford has already invested more than $5 billion to build factories and other resources in the region and has promised a lineup of 15 new models by 2015, all drawn from -- you guessed it -- Ford's acclaimed global lineup. The first of those, the Focus, was rolled out last spring.

In China, the Ford Focus is positioned as a premium offering, and it has rapidly become a best-seller. Ford's sales in the first two months of 2013 were up 46% over the same period in 2012. Ford just rolled out a version of its Escape SUV -- called the Kuga -- to strong reviews in China, and it plans to bring more SUVs, including the Explorer, to the country later this year.

So far, Ford hasn't made much of a profit in China, because it has been reinvesting so heavily in expansion efforts. But those efforts are expected to start paying off within a couple of years: Ford expects 70% of its overall growth to come from its "Asia Pacific Africa" region by 2015, and China will be the key driver of that growth.

The upshot: Ford's profits are on track to grow significantlyLong story short, here's the case for investing in Ford in a nutshell: Having proved that its "One Ford" approach is a winning formula in North America, Ford is in the process of implementing it in Europe and Asia -- and the company's profits should grow significantly over the next few years as a result.

Editors Note: article previously stated China's automotive market sold 19 billion vehicles; has since been corrected to 19 million. The Motley Fool apologizes for and regrets this error.

Fool contributor John Rosevear owns shares of Ford and General Motors. Follow him on Twitter at @jrosevear. The Motley Fool recommends Ford and General Motors and owns shares of Ford. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.